(Bloomberg) — Bill Gross says central bankers are “increasingly addled” as their low and negative-interest rate policies fail to produce sustainable growth, with even U.S. Federal Reserve leaders showing uncertainty about their next steps.
“‘How’s it workin’ for ya?’ would be a curt, logical summary of the impotency of low interest rates to generate acceptable economic growth worldwide,” Gross wrote in his monthly investment outlook Wednesday. “The fact is that global markets and individual economies are increasingly ‘addled’ and distorted.”
Central bankers in Europe have pushed some interest rates into negative territory, while the odds of the Fed raising U.S. borrowing costs again after December’s increase are receding further into the future. Federal Reserve Chair Janet Yellen and her colleagues suggested last week that they might put off boosting rates in March in response to the more uncertain economic outlook.
Venezuela faces bankruptcy as oil prices remain depressed, Gross wrote. Puerto Rico is likely to default on its debt and Brazil is in deep recession, according to Gross, who runs the $1.3 billion Janus Global Unconstrained Bond Fund with Kumar Palghat.
Gross’s fund returned 0.3 percent this year through Tuesday. Investors should avoid high-risk markets and stick with “plain vanilla,” Gross wrote.
Central bank statistical models for policy making are ignoring common sense and creating conditions reminiscent of the last decade’s housing bubble, Gross wrote. But instead of housing this time, Gross cited the risks for corporate debt.
“Shades of 2007,” he wrote. “The household sector has delevered, but the corporate sector never did, and with investment grade and high-yield yields 200-1000 basis points higher now, what does that say about future rollover, corporate profits and solvency in many commodity-sensitive areas?”
Gross, who was among those warning that central bank policies were causing a housing bubble before it eventually burst, said a Fed governor once called him an “odd duck” and “increasingly addled” for his criticism.
“Today’s Fed and other model based central banks are, to my way of thinking, the ones that have more and more become ‘increasingly addled,’ ” Gross wrote in his monthly note. “They all seem to believe that there is an interest rate SO LOW that resultant financial market wealth will ultimately spill over into the real economy.”